Restructuring and regrouping: Engro Foods addresses supply chain weakness

Company regroups after losing its main distributors in Karachi.

Farooq Baloch August 03, 2013
Engro Foods revealed that it is ready to launch pilot projects in the fresh milk and meat processing segments. On the other hand, the company has delayed the launch of its powdered milk till the next quarter of CY2013. PHOTO: FILE


With problems in product distribution taking toll on its revenues, Engro Foods Ltd. – which has been struggling to fix its distribution infrastructure for the last few years – is reaching out to more distributors. The food giant, according to its chief has already put in a couple of new distributors.

A subsidiary of Engro Corp. – Pakistan’s largest private-sector conglomerate – Engro Foods has had difficulties with its product distribution. Its ice cream brand Omore isn’t available at many retail outlets. Dairy Omung, a new addition to the company’s UHT products range, is often not found at stores, according to consumers.

The company has been investing on the distribution side to fix the problems. Its distribution and marketing expenses for the half year ended June 30, 2013 were Rs2.6 billion. Despite an almost 10% year on year (YoY) increase in distribution and marketing expense, the company is struggling to fix the distribution network, which dented it revenues as reflected in the latest results.

The company reported net sales of Rs18.9 billion for the first six months of calendar year (CY) 2013 earlier this week, showing a decline of 4% when compared with Rs19.7 billion it earned in sales during the same period last year. The results were below market expectations, according to analysts that cover the stock.

The company’s revenues for the dairy sector declined by 4% YoY, following a 13% YoY decline in UHT milk volumes during the period under review, according to a report by AKD Research.

The company has cited problems with its product distribution network as the main reason for the decline in sales, JS Research said in its report.

“We have been trying to put in new distributors,” Engro Foods CEO, Sarfaraz A Rehman, told The Express Tribune. In fact, he said, the company has already signed up a couple of new distributors and is reaching out to more.

Admitting the distribution issues have caused problems, Rehman said a couple of distributors resigned because of the security situation in Karachi. Then there are issues with distribution infrastructure in general, he said. But there is no major problem and these things will be fixed soon, he said.

Responding to a question about Dairy Omung’s availability, he said Omung is a new business and it takes a long time before things start working smoothly.

During analysts briefing, Engro Foods revealed that it is ready to launch pilot projects in the fresh milk and meat processing segments. On the other hand, the company has delayed the launch of its powder milk till the next quarter of CY2013.

“Obviously, we should not launch any product unless we fix the distribution infrastructure,” Rehman said while responding to a question about the delay in the powder milk plant. Secondly, it’s difficult to launch a new product in down season, he added.

Following a result, which was below market expectations, the market analysts have revised their earnings projection for Engro Foods downward. AKD alone revised down the company’s earnings projection by 26% for CY2013.

Published in The Express Tribune, August 4th, 2013.

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